Livingstone v MITCHELL

[2008] NSWCA 305

New South Wales

Court of Appeal

CITATION:	LIVINGSTONE & Anor v MITCHELL & Anor [2008] NSWCA 305
HEARING DATE(S):	5 November 2008
JUDGMENT DATE:	19 November 2008
JUDGMENT OF:	Ipp JA at 1; Handley AJA at 2; Hoeben J at 20
DECISION:	Appeal and cross appeal dismissed with costs.
CATCHWORDS:	DAMAGES - CAUSATION IN HYPOTHETICAL SITUATION - INFERENCES - No question of principle
CATEGORY:	Principal judgment
PARTIES:	Ian Hunter LIVINGSTONE (First Appellant) Merrilyn LEIGH (Second Appellant) William Paul MITCHELL (First Respondent) Julia GILLARD (Second Respondent)
FILE NUMBER(S):	CA 40047/2008
COUNSEL:	Appellants: I D Faulkner SC/ J O'Sullivan Respondents: D Davies SC/ J Downing
SOLICITORS:	Appellants: David Zammit & Associates Respondents: Ebsworth & Ebsworth Lawyers
LOWER COURT JURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	SC 20427/2005
LOWER COURT JUDICIAL OFFICER:	Walmsley AJ
LOWER COURT DATE OF DECISION:	18 December 2007
LOWER COURT MEDIUM NEUTRAL CITATION:	NSWSC 1477

CA 40047/2008
SC 20427/2005

IPP JA
HANDLEY AJA
HOEBEN J

Wednesday 19 November 2008

Ian Hunter LIVINGSTONE & Anor v William Paul MITCHELL & Anor

JUDGMENT

1 IPP JA: I agree with Handley AJA and the orders he proposes.

2 HANDLEY AJA: This is an appeal from the judgment of Walmsley AJ in an action by former clients for professional negligence against their former solicitors. On 21 September 2001 the clients contracted to purchase an unfinished residential property at Cave’s Beach south of Newcastle from the owner builders for $400,000. The vendors did not have home building insurance and, contrary to the provisions of the Home Building Act, a certificate of insurance was not annexed to the contract of sale. The solicitors failed to advise their clients that they were entitled to insist on the vendor’s obtaining home building insurance and the Act gave them the right to rescind the contract. The existence of negligence is no longer in issue.

3 The trial judge found that the purchasers firmly believed that they had secured a bargain. Prior to the exchange of contracts they had the property inspected by a builder, Mr Jeffs. In his report he noted a great deal of unfinished work most of which would have been obvious to a lay person, and some defects such as the absence of expansion joints in the walls. The report was based on a purely visual inspection. The purchasers’ son also arranged for a friend, Mr Jolley, who was a builder, to look over the property.

4 The purchasers bought the property with the intention of completing the work and selling it for a profit within a relatively short time. Mr Livingstone snr had read the Jeffs’ report and, given its terms, thought that the price of $400,000 was fair. His son, who had also read the Jeffs’ report, did some cost estimates for the necessary work to complete the building. He also thought that $400,000 was a good price. Both had experience as property developers in buying, doing up and selling houses for a profit.

5 The vendors were in financial difficulties and under pressure from their bank which held a mortgage over the property. Apart from the net deposit, after the deduction of the agent’s commission, the settlement sheet showed that they would only receive $20,420.00 from the balance of purchase money. They had been bargained down from an asking price of $450,000.

6 The judge found that the purchasers, if properly advised as to their legal rights, would have used the absence of an insurance certificate to negotiate a reduction of $10,000 from the purchase price and would then have settled. He also found that $390,000 was the fair market value of the property in its then condition in 2001. He gave judgment for the purchasers for $10,000 and interest. The purchasers have appealed seeking a higher award and the solicitors originally cross-appealed challenging the award made by the judge. The cross appeal was abandoned shortly before the hearing.

7 Mr Faulkner SC, who appeared with Mr O’Sullivan for the appellants, submitted that the purchasers, if properly advised, would have insisted on the vendors obtaining the necessary home builder insurance. The vendors would have done this rather than lose the sale, and the purchasers would have had the benefit of the policy with a maximum cover of $199,500.00.

8 There was evidence that the cost of the inspection of a building of this value on behalf of the insurance company and the premium would have been about $3,500. Despite the vendors’ straitened financial position, Mr Faulkner submitted that a mechanism would have been found which would have enabled them to access either the deposit or the balance of purchase money in order to pay those expenses. The judge found (paras [77], [118], [120]) that the building defects, which emerged progressively after settlement, were such that the amount required to remedy them would exceed $199,500.00 and the purchasers, if insured, would have been entitled to recover that amount (para [121]). Mr Faulkner submitted that this was the measure of the clients’ loss.

9 The judge did not accept this argument saying (para [83]):

“I consider it unlikely, given their financial position, that the vendors could or would have obtained insurance before settlement. Given a reference to the need for insurance in an Owner Builder Permit issued to them by the local council I infer it is likely that the male vendor at least, knew of the need for such insurance.”

10 Mr Faulkner challenged these inferences. He submitted that since the vendors were anxious to settle, and the purchasers would have wanted home builder insurance a mechanism could have been found to enable the vendors to pay for such insurance. However even if this were accepted the appellants would still be faced with the finding that that “would” not have happened.

11 The judge was satisfied that the processes of obtaining such a policy would have taken “quite some time” (para [79]). There was evidence that policies have been refused where the building was in poor condition and the judge accepted evidence that the insurance company “invariably requires that the repairable work be repaired”, and will excise from the cover “the work that is not acceptable, unrepairable” (para [78]). This was the evidence of Mr Barker, who was called by the appellants (Black Supp 52). Mr Barker gave further evidence on this topic (Black Supp 56-7):

“Q. Just to clarify that, does it work this way, to your understanding, that where the building inspector who does the inspection before the issue of the policy identifies some problem and informs the insurance company of that, then, ordinarily, in your experience, the insurance company will not respond in relation to that problem down the track?
A. No. My evidence was that if a defect is identified it is classified as either repairable or not repairable , and if it is repaired and repairable, the discussion between the potential insured and the insurance company normally makes the insured repair that work before the policy is issued, and then it becomes an insured item. But if it is not practicable to repair, then it is excised from the policy.
Q. Or it is not just repaired at that time?
A. I guess that would follow if it has not been repaired.”

12 The judge said later (para [118]):

“As I have noted, Mr Barker’s evidence shows that an insurer would have been expected to insist defects be fixed or they would be excluded from cover.”

13 That is not what the judge noted earlier at (para [78]), but it reflects the evidence (“guess”) of Mr Barker quoted above. However, this “guess” must be weighed against his earlier evidence that the insurance company “invariably” (para [78]) or “normally” makes the intending insured repair the obvious and repairable defects before the policy is issued.

14 The vendors were in no position to repair any defects. Those noted by Mr Jeffs must have been picked up during an inspection on behalf of the insurance company, and if they were not repaired the vendors were unlikely to obtain insurance.

15 The judge found that it was “highly likely” (para [84]) that the purchasers would have settled without insurance and he listed nine matters which led him to this conclusion. He also had the benefit of seeing Mr Ian Livingstone, the father, and the son in the witness box. This finding cannot be disturbed.

16 The willingness of the purchasers to settle without insurance supports the judge’s finding that the vendors would not have obtained insurance before settlement. They would only have done this if really pressed by the purchasers. If the latter were willing to settle without insurance for a reduction in price of $10,000 there was no reason for the vendors to apply for a policy with the cost and delay that this would have involved. In my judgment the finding that the vendors would not have obtained insurance before settlement cannot be disturbed either.

17 The purchasers therefore failed to establish that, if they had been properly advised, they would have obtained the benefit of a home builder policy issued to the vendors.

18 The appeal therefore fails and must be dismissed.

19 The appeal and cross appeal should be dismissed with costs.

20 HOEBEN J: I agree with Handley AJA and the orders he proposes.

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